Newly licenced trade repositories (TRs) may pull out of the market in the near future because of its unprofitable nature, delegates heard at the Mondo Visione Exchange Forum.
Andrew Douglas, head of government relations, Europe and Asia, at the Depository Trust and Clearing Corporation (DTCC), told delegates there would probably be only four or less TRs in the future.
“We talk about this as a business and I would define a business as being a profit-making operation,” Douglas said. “It is very clear from the regulation that it is to operate as an at-cost utility.”
He believed a number of organisations would decide that the TR business was not what they thought it was.
Six TRs applied to operate in Europe to the European Securities and Markets Authority (ESMA), as new regulation requires market participants to report derivatives trades to a repository.
ESMA last week approved the registration of four TRs – the DTCC’s Derivatives Repository, Poland’s Central Securities Depository of Poland (KDPW), REGIS-TR, a joint venture by Iberclear and Clearstream, and the London Stock Exchange’s UnaVista. A decision has yet to be made on applications from CME Group and IntercontinentalExchange.
Daniel Jude, director, client development and sales, asset managers, EMEA, CME Group, said competition in the reporting space wasn’t “particularly useful” for clients.
“Yes, it’s good to have competition, but when it comes to reporting it’s the wrong end of the stick to have competition. As we all know the reconciliation that we will have to do is quite complicated.”
Jude noted the US Commodity Futures Trading Commission were having trouble making sense of the reporting data received despite working with three TRs. “Imagine having six or more trade repositories,” he said.
DTCC’s Douglas agreed: “Why introduce data fragmentation, only to have to bring it back together again for regulators?” he said.
However, Mark Husler, global head of UnaVista, said having a monopoly is not the way to go, regardless of the business model.
“I think ESMA has got this absolutely spot on to introduce competition,” he said. “We can already start to see the prices going down before the regime even goes live, so I think it’s a healthy thing.”